March 30, 2020 [Thomson Reuters] – The dual shock of the coronavirus outbreak and plunging oil prices should push Gulf states to prioritise fiscal support for affected sectors of their non-oil economies, which are expected to slow this year, the International Monetary Fund said.
Gulf oil exporters’ governments and central banks have so far launched broad-based stimulus packages to mitigate the economic impact of the pandemic.
To best support their economies, and preserve their ability to recover after the pandemic, Gulf authorities should adopt a targeted approach, said Jihad Azour, director of the Fund’s Middle East and Central Asia Department.
“Not all sectors of the economy are affected this year and therefore you don’t need at the beginning to have a blanket type of measures,” he told Reuters.
“…It has to be focused and well designed,” he said, adding that central banks and governments needed to coordinate their measures. He mentioned the tourism sectors in Bahrain and Qatar, and transportation and logistics in the United Arab Emirates, as sectors that should benefit from fiscal support.
Stimulus packages offered so far come to nearly 30% of GDP in Bahrain and Oman, more than 10% in the United Arab Emirates and Qatar and over 4% in Saudi Arabia, according to Fitch Ratings.
“The ability to address the problems that are faced by the economy is on a country by country basis and is more important than the size of the (stimulus) package,” Azour said. “But one has to accept that this year growth will slow and for the oil-exporting countries especially the non-oil sector will slow.”
The IMF said this week the coronavirus outbreak will cause a global recession in 2020 that could be worse than the one triggered by the financial crisis of 2008-2009. The market turmoil caused by the pandemic could affect accessibility to financing for some governments, said Azour.
While Gulf oil exporters can count in the short term on external financing and use some of their reserves, “the real challenge is more for oil-importing countries with high levels of debt.”
Gulf crude exporters have introduced fiscal policies such as value-added taxes to diversify revenues away form oil since the fall in oil prices in 2014/15. “This is something that will help them over time … (and) this is also an opportunity for countries to revisit some of their previous policies,” he said.
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